Dow 30: key indices react to economic data and geopolitical updates

Correction territory for key indices

Several impactful items were digested late last week. The PCE (Personal Consumption Expenditures) Price Index for September showed m/m (month-on-month) headline growth of 0.4%. Its core was up 0.3%. Y/y (year-on-year) rates were 3.4% and 3.7%, respectively, which was mostly in line with forecasts. Revised figures from UoM (University of Michigan) showed that five-year consumer inflation expectations remained at 3%, similar to preliminary estimates.

The real concern was the rise in the 12-month figure, which jumped to 4.2%. For September, personal income showed a growth of 0.3%. However, spending was at 0.7%, raising questions about the sustainability of consumption. A day earlier, the advanced GDP (Gross Domestic Product) for Q3 revealed robust growth of 4.9%. Yet, the Atlanta Fed's GDPNow estimate for this quarter is only at 2.3%.

Equities and commodities

Key indices ended the week in the red. Both the S&P 500 and Nasdaq 100 entered correction territory. In the bond market, attention remains focused on where Treasury yields will settle. They pulled back slightly w/w (week-on-week) from recent highs. Oil prices struggled, but gold outperformed by breaching the $2K mark. Geopolitical updates could still induce volatile movements in both markets.

Economic indicators to watch

The upcoming week promises to be busy on multiple fronts. It starts off light in terms of U.S. economic data but picks up later. The CB's (Conference Board) Consumer Confidence Index is one key data point to watch. It has experienced several declines. Housing price data is also due. Employment will be the primary focus. This will include Q3 employment costs, ADP’s non-farm estimates, job openings, weekly claims, and Challenger’s job cuts. All of these will lead up to the market-impacting Non-Farm Payrolls (NFP) on Friday.

Market expectations

Expectations are for job growth of approximately 180K for September. This is down from a previous high of 336K. The unemployment rate is expected to hold steady at 3.8%. Observers will also watch for any change in wage growth. Manufacturing PMIs (Purchasing Managers' Index) are due on Wednesday. These will come from both the ISM (Institute for Supply Management) and S&P Global. Data for the more crucial services sector will be released on Friday.

Earnings and fiscal updates

Earnings reports from McDonald's and AMD are due early in the week. Apple's results are most keenly awaited and will be released on Thursday. On the fiscal front, the U.S. Treasury's Quarterly Refunding announcement is slated for Wednesday. The FOMC (Federal Open Market Committee) decision is also due that day. Market pricing suggests rates will hold steady. However, a minority expect another 25bp (basis point) hike in the December/January period. Some even expect a rate cut by June next year.

Dow technical analysis, overview, strategies, and levels

So far, there has been no change in the technical overviews. These are categorized weekly as 'cautious consolidation' and daily as 'bear average.' However, a negative technical bias has started to impact key long-term indicators. Price is approaching its main weekly moving averages at the lower end of the band. On the DMI (Directional Movement Index) front, there is a substantial negative bias. Last week, sell-breakout strategies were successful, particularly when combined with Friday's data.

IG client* and CoT** sentiment for the Dow

Regarding sentiment, the decline in price has propelled the majority buy bias into heavily long territory, rising from 61% at the beginning of last week to 70% at the outset of this week. CoT speculators, on the other hand, remain firmly on the sell side but have scaled back slightly from 75% to 71%.

Dow chart with retail and institutional sentiment